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iPhone and iPad Sales Drive Record Apple Revenue and Operating Profit – But Is The Law Of Large Numbers Looming?

Apple on Monday announced financial results for its fiscal 2014 first quarter ended December 28, 2013. The Company posted record quarterly revenue of $57.6 billion and quarterly net profit of $13.1 billion, or $14.50 per diluted share. These results compare to revenue of $54.5 billion and net profit of $13.1 billion, or $13.81 per diluted share, in the year-ago quarter. Gross margin was 37.9 percent compared to 38.6 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue.

The Company sold 51 million iPhones, an all-time quarterly record, compared to 47.8 million in the year-ago quarter. Apple also sold 26 million iPads during the quarter, also an all-time quarterly record, compared to 22.9 million in the year-ago quarter. The Company sold 4.8 million Macs, compared to 4.1 million in the year-ago quarter.

Apple’s Board of Directors has declared a cash dividend of $3.05 per share of the Company’s common stock. The dividend is payable on February 13, 2014, to shareholders of record as of the close of business on February 10, 2014.

“We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services,” comments Tim Cook, Apple’s CEO. “We love having the most satisfied, loyal and engaged customers, and are continuing to invest heavily in our future to make their experiences with our products and services even better.”

“We generated $22.7 billion in cash flow from operations and returned an additional $7.7 billion in cash to shareholders through dividends and share repurchases during the December quarter, bringing cumulative payments under our capital return program to over $43 billion,” notes Peter Oppenheimer, Apple’s CFO.

Apple is providing the following guidance for its fiscal 2014 second quarter:
• revenue between $42 billion and $44 billion
• gross margin between 37 percent and 38 percent
• operating expenses between $4.3 billion and $4.4 billion
• other income/(expense) of $200 million
• tax rate of 26.2 percent

The Law Of Large Numbers?

However, Apple many be running up against a phenomenon known as the “Law Of Large Numbers,” — a rule that Investopedia explains means as a company grows, its chances of sustaining a large percentage in growth diminish, because as a company continues to expand, it must grow more and more just to maintain a constant percentage of growth.

Ergo: to grow by 50% a company with a market capitalization of $400 billion must increase thet market capitalization by $200 billion, while a company with a market capitalization of $5 billion only has to increase its market capitalization by $2.5 billion in order to grow by 50%. The article notes that a company that continued to grow at 30-50% annually would eventually become larger than the economy itself, which obviously can’t happen and growth eventually has to slow down.

Apple has posted webcast live streaming of its Q1 2014 financial results conference call of January 27, 2014 at http://www.apple.com/quicktime/qtv/earningsq114. This webcast will also be available for replay for approximately two weeks.